I have recently been contacted by HMRC regarding an Ebay account that shows fees paid on it greater than my declared turnover on my Self-Assesments, according to the way they worded the letter.

I have not been keeping detailed records and this is for accounts in 2012, like alot of people I fell into this trading online and have never run a business before. the Ebay account in question was run for personal and business sales and I have bought and sold all kinds of household items and items relating to my various hobbies, so it's wrong for HMRC to think everything going through the account was business related.

I am about to write back to them to point this out, but was looking for any advice from users on here as to how to proceed. If I am honest I have been under declaring my turnover to save a bit on Tax, but my turnover is only around 30-40k a year.

You have admitted over a public medium to tax evasion, a criminal offence.
Before you dig a deeper hole, I would advise you to instruct a local accountant/tax adviser to make a full disclosure on your behalf, you could of course do it yourself as you appear to intend to do, forgive me for saying so but you do not seem to be making a very good job of it so far.
Assuming HMRC settle for civil penalties they will seek full payment of the outstanding tax, charge interest to the date of payment and apply penalties under Sch 24 FA 2007 (incorrect returns).
The penalties are behaviour related, your behaviour is certainly deliberate but may also be concealed, the penalty can be as high as 100% of the amount of tax owing (exc interest).
The disclosure is prompted so the minimum penalty (assuming deliberate and concealed) would be 50% of the outstanding tax.
HMRC can also charge penalties for a failure to keep records under Sch 37 FA 2008, it would be in your interest to locate any missing records.

L is, broadly, correct. But I have assumed in my position that you may well have felt pressured into recognising total turnover as deriving from taxable trading activity, while assets bought for private use and then sold, even at a profit, do not fall within the ambit of a trading activity. (That is one of the issues covered in the aforementioned article, which is why I wanted to make sure you were aware of the point).

Where there is a mix, you are entitled to carve out and ignore any private purchases and sales, and you are required to recognise basically only those items which you bought with the intention of selling on at a profit, or on a speculative basis.

L is, broadly, correct. But I have assumed in my position that you may well have felt pressured into recognising total turnover as deriving from taxable trading activity, while assets bought for private use and then sold, even at a profit, do not fall within the ambit of a trading activity. (That is one of the issues covered in the aforementioned article, which is why I wanted to make sure you were aware of the point).

Where there is a mix, you are entitled to carve out and ignore any private purchases and sales, and you are required to recognise basically only those items which you bought with the intention of selling on at a profit, or on a speculative basis.

Regards,

Lambs

Not sure id I agree that there can be a mix of trading and non-trading activities in these circumstances. If the trade is selling miscellaneous items on eBay, then whatever is sold will form part of that trade. Imagine a baker baking a few extra cakes at home for his own use, but decides that he has made too many. If he sells them, these will be part of his trading profit.

Items bought for private use will form part of the trade as soon as they are brought into the trading environment. Also, most people sell their own goods for less than they paid for them. It might not be beneficial to strip out the loss making transactions.

Assets acquired for personal use are not automatically brought into the trade. It depends on the intention when the items are acquired. If a sole trader plumber buys a bed for his house, does it automatically become trading stock? And if he sells it two years later, is it a trading sale? No. There is a clear distinction to be drawn, and it can be divined from the trader's intention on acquisition. That intention may change, and that too can be catered for.

I appreciate your point about second-hand goods being potentially loss-making. If there is an overlap between items bought for resale and those bought privately, then perhaps. It might depend on to what extent purchases were speculative.